CALGARY, ALBERTA--Earnings applicable to common shareholders for
the nine months ended September 30, 2002 are $542.5 million, or
$3.42 per share, compared with $418.7 million, or $2.66 per
share, for the same period in 2001. The results demonstrate
continued growth in operating earnings from liquids pipelines and
international operations. The weather in the gas distribution
franchise area was warmer than normal during the first half of
the year and adversely affected results. Earnings for 2002 also
include a gain of $240.0 million, after tax, from the sale of the
Energy Services business and a $76.3 million after-tax writedown
of assets to be sold to Enbridge Energy Partners, L.P. in the
fourth quarter. Prior year's earnings included the benefit of
$58.5 million related to income tax rate reductions. After
adjusting for significant one-time gains and losses and the
impact of weather, earnings for the nine months ended September
30, 2002 are $389.0 million, compared with $356.0 million for the
same period last year.
Earnings for the quarter ended September 30, 2002 are $72.4
million, before the asset writedown announced in September, an
increase of $7.6 million when compared with the third quarter in
2001. Earnings in 2002 reflect the positive effects of growth in
the liquids pipelines business, colder than normal weather in the
gas distribution franchise area during the third quarter and the
investment in 2002 in CLH of Spain, partially offset by higher
corporate costs. After the writedown, a loss of $3.9 million was
recorded for the three months ended September 30, 2002, or $0.03
per share, compared with earnings of $64.8 million, or $0.41 per
share, for the three months ended September 30, 2001.
"During the quarter we made progress on and achieved a number of
key strategic initiatives," said Enbridge President & Chief
Executive Officer, Patrick D. Daniel. "While the sale of the
Midcoast assets to Enbridge Energy Partners, L.P. took longer
than we anticipated, we have delivered on that commitment. The
Partnership now enjoys a stronger, more diversified asset base
which will provide an excellent platform for future growth.
Enbridge benefits from that growth through our equity interest
and higher distributions to the general partner, owned by
Enbridge. The sale of the Midcoast assets also will assist in
achieving our target leverage of 60 to 65% by year end."
Mr. Daniel continued, "Year-to-date results, adjusted for
non-recurring items, reflect Enbridge's formula of predictable
and stable core earnings growth. This growth will be enhanced
further by our increased interest in Alliance."
The Enbridge Board of Directors today also declared quarterly
dividends of $0.38 per common share and $0.34375 per Series A
preferred share. Both dividends are payable on December 1, 2002
to shareholders of record on November 20, 2002.
RECENT DEVELOPMENTS
Assets Held for Sale - Enbridge Midcoast Energy
On October 17, 2002, the Company closed the sale of the United
States assets of Enbridge Midcoast Energy to Enbridge Energy
Partners, L.P. (Partnership) for consideration of US $820
million, including cash and the assumption of debt.
Concurrent with the sale transaction, Enbridge Energy Management,
L.L.C. (EEM), a subsidiary of Enbridge, completed an initial
public offering of 9,000,000 shares representing limited
liability company interests with limited voting rights. The net
proceeds from the offering were used to purchase i-units, a new
class of limited partnership interests, from the Partnership.
The proceeds from the i-units have been used to finance a portion
of the acquisition cost of the assets. In connection with the
offering, Enbridge purchased 17.2% of the EEM shares, increasing
its effective ownership in the Partnership to 14.1% from 12.9%.
EEM has no assets or operations other than those related to the
interest in the Partnership and, by agreement, will manage the
business and affairs of the Partnership. The EEM shares trade on
the New York Stock Exchange under the symbol "EEQ".
Alliance Pipeline Ownership
In the third quarter, Enbridge agreed to purchase Williams' 14.6%
and El Paso's 14.4% interests in the Alliance Pipeline. The
acquisition from El Paso also includes its 14.4% interest in Aux
Sable and Alliance Canada Marketing. Enbridge will not assume
either company's direct merchant capacity commitments on the
pipeline.
As the acquisitions are subject to the right of first refusal of
the other Alliance owners, Enbridge anticipates that its
ownership in the Alliance Pipeline will increase by approximately
17%, at a total cost of about $300 million in cash. Enbridge
then would own approximately 38% of Alliance and 31% of Aux
Sable. The Company expects that a reduced number of partners in
the Alliance Pipeline will result in efficiencies. The
acquisitions are subject to regulatory approvals and are expected
to close in the fourth quarter of 2002.
Enbridge Gas Distribution Rate Application
In September, Enbridge Gas Distribution (formerly Enbridge
Consumers Gas) filed its 2003 rate application with the Ontario
Energy Board. The application is a traditional cost-of-service
application. Enbridge Gas Distribution plans to apply to the
Ontario Energy Board for a renewed and comprehensive incentive
regulation plan to commence in 2004.
FINANCIAL RESULTS
Enbridge's earnings include results from continuing and
discontinued operations. Earnings from continuing operations are
discussed in the following analysis of financial results.
Earnings from continuing operations for the nine months ended
September 30, 2002 are $300.2 million, or $1.89 per share,
compared with earnings of $383.5 million, or $2.44 per share, for
the same period in 2001. Growth in earnings from liquids
pipelines and international operations has been more than offset
by the writedown to fair value of the assets held for sale,
warmer than normal weather and the positive impact of income tax
rate reductions on earnings in 2001.
Earnings for the three months ended September 30, 2002 of $72.4
million from continuing operations, excluding the asset
writedown, compares with earnings of $58.4 million for the same
three months in 2001. Growth in earnings from the liquids
pipelines and international operations, combined with colder than
normal weather in the third quarter, is partially offset by
higher corporate costs.
Energy Transportation North
Earnings are $169.2 million for the nine months ended September
30, 2002, an increase of $33.3 million over the same period in
2001. Earnings from the multi-phase Terrace expansion are higher
because the 2001 request to construct Phase III, results in
incremental earnings and Phase II was placed into service in
early 2002. The Enbridge Athabasca System generated higher
earnings due to the construction of new facilities. Improved
results from the Company's investments in the Alliance Pipeline,
Aux Sable and the Vector Pipeline, partially offset by increased
losses from the merchant capacity commitments, also contributed
to the increase.
Earnings for the three months ended September 30, 2002 of $56.3
million are $10.2 million higher than the same period last year
resulting from a higher contribution from Terrace and expansion
on the Athabasca System. The prior year included an adjustment
of oil inventory due to shippers.
Energy Transportation South
Results for the nine months ended September 30, 2002 reflect a
loss of $38.6 million, compared with earnings of $27.8 million
for the same period last year. The 2002 results include the
writedown of the Enbridge Midcoast Energy assets, amounting to
$76.3 million, to be sold to the Partnership. Excluding this
writedown, earnings for 2002 are higher by $9.9 million and
reflect higher earnings from the Partnership, resulting from the
acquisitions of the North Dakota and East Texas systems. Enbridge
Midcoast Energy earnings in 2001 include results only from May
2001, the date of acquisition. The 2002 results also include
adjustments related to the prior year, recorded in the first
quarter of 2002, that reduced earnings.
Before the writedown of the Enbridge Midcoast Energy assets,
earnings from Energy Transportation South for the third quarter
of 2002 are $11.7 million higher than the same period last year.
Earnings from Energy Transportation South reflect improved
Partnership performance and better operating margins for the
Enbridge Midcoast Energy assets.
Energy Distribution
Earnings from Energy Distribution are $149.7 million for the nine
months ended September 30, 2002, compared with $227.4 million for
the nine months ended September 30, 2001. Lower earnings in 2002
are attributable to the warmer than normal weather experienced in
the Enbridge Gas Distribution franchise area in 2002, amounting
to $29.4 million, and the positive impact of income tax rate
reductions in 2001 of $45.0 million. Degree days, which are used
as a measure of coldness, were 10% fewer than 2001 and 8% less
than the forecast based on normal weather. Due to the seasonal
nature of energy distribution operations, quarterly earnings are
not indicative of full year results.
Earnings for the third quarter of 2002 are $3.1 million and
approximate earnings for the same period in 2001. While the
weather was colder during the third quarter of 2002 in comparison
with 2001, based on degree days, the third quarter of 2001
included the positive earnings impact stemming from the
settlement of 2001 rates. The 2002 rate settlement is expected
to be reached in the fourth quarter.
International
International earnings are $50.4 million for the nine months
ended September 30, 2002, an increase of $25.3 million from the
first nine months of 2001. The acquisition of CLH in the first
quarter represents the growth in International, as earnings from
other operations approximate last year. The operating results
from CLH are better than expected due to higher storage revenues
and lower operating costs.
Third quarter 2002 earnings are $16.4 million. The increase of
$9.0 million from last year is primarily due to earnings from
CLH.
Corporate
Corporate costs total $30.5 million for the nine months ended
September 30, 2002, compared with $32.7 million for the same
period in 2001. Costs for 2002 include a gain on the sale of
securities of $17.8 million, realized in the first quarter.
Financing costs increased in 2002 due to higher average debt
balances, partially offset by lower interest rates. Corporate
activities contributed less in 2002 and increased business
development activities generated higher costs.
Corporate costs for the three months ended September 30, 2002 are
$19.5 million, compared with $1.6 million for the three months
ended September 30, 2001. Although average debt balances were
lower, interest rates were higher and financing costs for the new
preferred securities were incurred. In addition, the Company
experienced increased business development costs, a lower
contribution from corporate activities and higher tax recoveries
in 2001.
Discontinued Operations
Net earnings from discontinued operations for the nine months
ended September 30, 2002 are $242.3 million, compared with $35.2
million for the same period in 2001. The 2002 results include a
gain of $240.0 million on the sale, in May 2002, of the Energy
Services business. The amount of the gain is subject to working
capital adjustments, expected to be finalized in the fourth
quarter. Earnings in 2001 included $14.3 million related to the
positive effect of income tax rate reductions.
Liquidity and Capital Resources
During 2002 the Company completed a preferred securities
offering, raising net proceeds of $193.5 million and a common
equity offering, raising net proceeds of $245.2 million. Also,
in May 2002, the Company received proceeds of $1 billion on the
sale of the Energy Services business. Proceeds from these
transactions were used primarily to reduce debt associated with
acquisitions and reduce the Company's consolidated leverage.
The following transactions will have an effect on liquidity and
capital resources subsequent to September 30, 2002. The sale of
the Enbridge Midcoast Energy assets to the Partnership for US
$820 million closed on October 17, 2002. The Company received
cash proceeds of approximately US $330 million and the remaining
consideration, in the form of assumed affiliated debt, will be
settled when the Partnership secures additional financing.
Concurrent with the sale transaction, EEM completed a public
offering of 9,000,000 shares. The net proceeds from the EEM
offering were used to purchase i-units in the Partnership and the
net proceeds from the i-units were used to fund the cash portion
of the acquisition cost. In connection with the EEM offering,
Enbridge purchased 17.2% of the EEM shares for US $60.5 million.
The Company's consolidated leverage is expected to improve
further through reductions in the affiliated company debt as the
Partnership secures additional financing.
The Company has agreed to purchase additional ownership interests
in the Alliance Pipeline for approximately $300 million, expected
to close in the fourth quarter. This purchase is planned to be
financed from existing credit facilities.
The Company continues to generate sufficient cash from operations
to fund current operations, dividends, scheduled debt repayments
and planned capital expenditures. Net cash provided by operations
increased $326.6 million in 2002, compared with the same period
in 2001, due mainly to reductions in current assets. The primary
reduction is lower gas in storage, which reflects the lower
commodity cost of gas in 2002.
Enbridge Midcoast Energy is classified as held for sale on the
statement of financial position. Capital expenditures and the
acquisition of the Northeast Texas assets in the first quarter of
2002 have increased assets held for sale at September 30, 2002
from December 31, 2001. Long-term investments include the 25%
equity investment in CLH, acquired in the first quarter of 2002.
These items, in addition to capital expenditures in Energy
Transportation North and Energy Distribution, represent the
majority of the cash used for investing purposes. Expenditures
in Energy Transportation North include construction of new
facilities on the Enbridge Athabasca System. Energy Distribution
expenditures include capital maintenance and expansion of the gas
distribution system. In addition to the proceeds from the sale of
the Energy Services business, cash from investing activities
includes proceeds from the sale of securities.
Financing activities reflect reduction of debt using the proceeds
received from the sale of the Energy Services business, as well
as the issuance of preferred securities in the first quarter and
common equity in the third quarter.
Enbridge will hold a conference call at 2:15 p.m. Mountain time
(4:15 p.m. Eastern time) today to discuss the nine-month results.
The call will be broadcast live on the Internet at
www.enbridge.com/investor. A replay will be available shortly
thereafter.
Enbridge Inc. is a leader in energy transportation and
distribution in North America and internationally. As a
transporter of energy, Enbridge operates, in Canada and the U.S.,
the world's longest crude oil and liquids pipeline system. The
Company also has international operations and a growing
involvement in the natural gas transmission and midstream
businesses. As a distributor of energy, Enbridge owns and
operates Canada's largest natural gas distribution company, which
provides distribution services in the provinces of Ontario and
Quebec and in New York State; and is developing a gas
distribution system for the Province of New Brunswick. The
Company employs approximately 4,000 people, primarily in Canada,
the U.S. and South America. Enbridge's common shares trade on
the Toronto Stock Exchange in Canada and on the New York Stock
Exchange in the U.S. under the symbol ENB. Information about
Enbridge is available on the Company's web site at
When used in this news release, the words "anticipate", "expect",
"project", "believe", "estimate", "forecast" and similar
expressions are intended to identify forward-looking statements,
which include statements relating to pending and proposed
projects. Such statements are subject to certain risks,
uncertainties and assumptions pertaining to operating
performance, regulatory parameters, weather and economic
conditions and, in the case of pending and proposed projects,
risks relating to design and construction, regulatory processes,
obtaining financing and performance of other parties, including
partners, contractors and suppliers.
ENBRIDGE INC.HIGHLIGHTS(1)--------------------------------------------------------------------- Three months ended Nine months ended(unaudited; millions of September 30 September 30 Canadian dollars, except per -------------------------------------share amounts) 2002 2001 2002 2001---------------------------------------------------------------------FINANCIAL Earnings/(Loss) Applicable to Common Shareholders Energy Transportation North 56.3 46.1 169.2 135.9 Energy Transportation South (60.2) 4.4 (38.6) 27.8 Energy Distribution 3.1 2.1 149.7 227.4 International 16.4 7.4 50.4 25.1 Corporate (19.5) (1.6) (30.5) (32.7)--------------------------------------------------------------------- Continuing operations (3.9) 58.4 300.2 383.5 Discontinued operations - 6.4 242.3 35.2--------------------------------------------------------------------- (3.9) 64.8 542.5 418.7------------------------------------------------------------------------------------------------------------------------------------------Cash Provided By Operating Activities Earnings plus charges/(credits) not affecting cash 250.6 123.7 692.9 570.3 Changes in operating assets and liabilities 16.3 126.3 193.2 5.2 Cash provided by operating activities of discontinued operations - 59.2 28.6 12.6--------------------------------------------------------------------- 266.9 309.2 914.7 588.1------------------------------------------------------------------------------------------------------------------------------------------Common Share Dividends 62.3 56.9 186.5 170.5Per Common Share Amounts Earnings/(loss) from continuing operations (0.03) 0.37 1.89 2.44 Earnings from discontinued operations - 0.04 1.53 0.22--------------------------------------------------------------------- (0.03) 0.41 3.42 2.66------------------------------------------------------------------------------------------------------------------------------------------Dividends 0.38 0.35 1.14 1.05------------------------------------------------------------------------------------------------------------------------------------------Weighted Average Common Shares Outstanding (millions) 158.9 157.4------------------------------------------------------------------------------------------------------------------------------------------OPERATING Energy Transportation(2) Deliveries (thousands of barrels per day) 2,063 1,984 2,066 2,100 Barrel miles (billions) 173 160 522 517 Average haul (miles) 909 878 926 903Energy Distribution3 Volumes (billion cubic feet) 99 85 363 382 Number of active customers (thousands) 1,618 1,566 1,618 1,566 Degree day deficiency(4) Actual 851 691 3,358 3,732 Forecast based on normal weather 699 760 3,631 3,744---------------------------------------------------------------------1. Highlights of Energy Distribution reflect the results of Enbridge Gas Distribution (formerly Enbridge Consumers Gas) and other gas distribution operations for the three and nine months ended June 30, 2002 and 2001.2. Energy Transportation operating highlights include the statistics of the Lakehead System and wholly-owned liquid pipeline operations.3. Energy Distribution volumes and the number of active customers are derived from the aggregate system supply and direct purchase gas supply arrangements. 4. Degree-day deficiency is a measure of coldness. It is calculated by accumulating for each day in the period the total number of degrees each day by which the daily mean temperature falls below 18 degrees Celsius. The figures given are those accumulated in the Toronto area.ENBRIDGE INC.CONSOLIDATED STATEMENTS OF OPERATIONS--------------------------------------------------------------------- Three months ended Nine months ended(unaudited; millions of September 30 September 30 Canadian dollars, except per -------------------------------------share amounts) 2002 2001 2002 2001---------------------------------------------------------------------Revenues Gas sales 779.3 646.9 2,627.5 2,298.8 Transportation 309.2 276.4 1,049.7 906.7 Energy services 87.1 46.2 234.0 142.0--------------------------------------------------------------------- 1,175.6 969.5 3,911.2 3,347.5---------------------------------------------------------------------Expenses Gas costs 683.8 552.2 2,285.9 1,896.8 Operating and administrative 245.7 190.1 683.7 525.9 Depreciation 98.0 100.2 307.9 289.7 Writedown of assets held for sale 117.4 - 117.4 ---------------------------------------------------------------------- 1,144.9 842.5 3,394.9 2,712.4---------------------------------------------------------------------Operating Income 30.7 127.0 516.3 635.1Investment and Other Income 69.6 53.2 219.6 169.1Interest Expense (106.8) (111.6) (320.9) (314.5)---------------------------------------------------------------------Earnings/(Loss) from Continuing Operations Before Income Taxes (6.5) 68.6 415.0 489.7Income Taxes 11.2 (3.9) (90.1) (87.8)---------------------------------------------------------------------Earnings from Continuing Operations 4.7 64.7 324.9 401.9Earnings from Discontinued Operations - 6.4 242.3 35.2---------------------------------------------------------------------Earnings 4.7 71.1 567.2 437.1Preferred Security Distributions (6.9) (4.5) (19.6) (13.2)Preferred Share Dividends (1.7) (1.8) (5.1) (5.2)---------------------------------------------------------------------Earnings/(Loss) Applicable to Common Shareholders (3.9) 64.8 542.5 418.7------------------------------------------------------------------------------------------------------------------------------------------Earnings/(Loss) Applicable to Common Shareholders Continuing Operations (3.9) 58.4 300.2 383.5 Discontinued Operations - 6.4 242.3 35.2--------------------------------------------------------------------- (3.9) 64.8 542.5 418.7------------------------------------------------------------------------------------------------------------------------------------------Earnings/(Loss) Per Common Share Continuing Operations (0.03) 0.37 1.89 2.44 Discontinued Operations - 0.04 1.53 0.22--------------------------------------------------------------------- (0.03) 0.41 3.42 2.66------------------------------------------------------------------------------------------------------------------------------------------Diluted Earnings/(Loss) Per Common Share Continuing Operations (0.03) 0.37 1.87 2.42 Discontinued Operations - 0.04 1.51 0.22--------------------------------------------------------------------- (0.03) 0.41 3.38 2.64------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the unaudited consolidated financialstatements.ENBRIDGE INC.CONSOLIDATED STATEMENTS OF RETAINED EARNINGS--------------------------------------------------------------------- Nine months ended September 30 -----------------(unaudited; millions of Canadian dollars) 2002 2001---------------------------------------------------------------------Retained Earnings at Beginning of Period 812.3 581.3Earnings Applicable to Common Shareholders 542.5 418.7Common Share Dividends (186.5) (170.5)Preferred Security Issue Costs (4.2) -Effect of Change in Accounting for Stock-based Compensation (5.4) ----------------------------------------------------------------------Retained Earnings at End of Period 1,158.7 829.5---------------------------------------------------------------------See accompanying notes to the unaudited consolidated financial statements. ENBRIDGE INC.CONSOLIDATED STATEMENTS OF CASH FLOWS--------------------------------------------------------------------- Three months ended Nine months ended(unaudited; millions of September 30 September 30 Canadian dollars) ------------------------------------- 2002 2001 2002 2001---------------------------------------------------------------------Cash Provided By Operating Activities Earnings from continuing operations 4.7 64.7 324.9 401.9 Charges/(credits) not affecting cash Depreciation 98.0 100.2 307.9 289.7 Equity earnings less than/(in excess of) cash distributions 7.7 11.8 (22.1) 0.4 Gain on reduction of ownership interest - - (10.0) (11.5) Writedown of assets held for sale 117.4 - 117.4 - Gain on sale of securities - - (21.4) - Future income taxes 41.0 (47.4) 48.4 (78.0) Other (18.2) (5.6) (52.2) (32.2)Changes in operating assets and liabilities 16.3 126.3 193.2 5.2Cash provided by operating activities of discontinued operations - 59.2 28.6 12.6--------------------------------------------------------------------- 266.9 309.2 914.7 588.1---------------------------------------------------------------------Investing Activities Additions to property, plant and equipment (156.3) (169.5) (542.0) (389.0) Long-term investments (14.7) (1.1) (463.5) (36.2) Sale of Energy Services business - - 993.3 - Acquisition of Northeast Texas assets - - (289.3) - Proceeds from sale of securities - - 110.5 - Acquisition of Midcoast Energy Resources, Inc. - - - (561.8) Loans to affiliate (0.2) (2.8) 222.3 (56.4) Changes in construction payable 3.3 7.1 (12.2) (26.8) Other 11.8 0.8 15.9 (2.2)--------------------------------------------------------------------- (156.1) (165.5) 35.0 (1,072.4)---------------------------------------------------------------------Financing Activities Net change in short-term borrowings and short-term debt (206.3) 39.9 (1,035.6) 684.1 Long-term debt issued - - 247.4 505.6 Long-term debt repayments - (201.0) (257.7) (548.8) Non-controlling interests (1.4) (1.1) (3.7) (2.9) Preferred securities issued - - 193.5 - Common shares issued 258.2 2.4 289.6 19.7 Preferred security distributions (6.9) (4.5) (19.6) (13.2) Preferred share dividends (1.7) (1.8) (5.1) (5.2) Common share dividends (62.3) (56.9) (186.5) (170.5)--------------------------------------------------------------------- (20.4) (223.0) (777.7) 468.8---------------------------------------------------------------------Increase/(Decrease) in Cash 90.4 (79.3) 172.0 (15.5)Cash at Beginning of Period 155.6 130.8 74.0 67.0---------------------------------------------------------------------Cash at End of Period 246.0 51.5 246.0 51.5------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the unaudited consolidated financial statements.ENBRIDGE INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION--------------------------------------------------------------------- September 30, December 31,(millions of Canadian dollars) 2002 2001---------------------------------------------------------------------Assets (unaudited) (audited)Current Assets Cash 246.0 74.0 Accounts receivable and other 961.5 1,270.2 Gas in storage 253.7 665.6 Current assets of discontinued operations - 123.0 Current assets held for sale 186.6 148.9--------------------------------------------------------------------- 1,647.8 2,281.7Property, Plant and Equipment, net 6,940.8 6,817.5Long-Term Investments 2,311.4 1,772.8Deferred Amounts 395.1 329.7Future Income Taxes 199.0 142.0Long-Term Assets of Discontinued Operations - 750.0Long-Term Assets Held for Sale 1,332.3 1,034.0--------------------------------------------------------------------- 12,826.4 13,127.7------------------------------------------------------------------------------------------------------------------------------------------ Liabilities and Shareholders' Equity Current Liabilities Short-term borrowings 89.2 410.9 Accounts payable and other 664.1 679.9 Interest payable 87.8 100.2 Current maturities and short-term debt 1,022.7 1,810.2 Current liabilities of discontinued operations - 73.8 Current liabilities held for sale 114.0 125.3--------------------------------------------------------------------- 1,977.8 3,200.3Long-Term Debt 6,076.0 5,922.8Future Income Taxes 777.4 722.8Non-Controlling Interests 129.9 131.1Long-Term Liabilities of Discontinued Operations - 118.6--------------------------------------------------------------------- 8,961.1 10,095.6Shareholders' Equity Share capital Preferred securities 534.0 339.7 Preferred shares 125.0 125.0 Common shares 2,165.6 1,875.9 Retained earnings 1,158.7 812.3 Foreign currency translation adjustment 17.7 7.4 Reciprocal shareholding (135.7) (128.2)--------------------------------------------------------------------- 3,865.3 3,032.1---------------------------------------------------------------------Contingencies (Note 9) 12,826.4 13,127.7------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the unaudited consolidated financial statements.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles and should be read in conjunction with the
consolidated financial statements and notes thereto included in
Enbridge Inc.'s 2001 Annual Report. These interim financial
statements are prepared on a consistent basis with those included
in the 2001 Annual Report and follow the same accounting policies
and methods of application, except as described in Note 1.
Earnings for interim periods may not be indicative of results for
the fiscal year due to weather and other factors. Certain
reclassifications have been made to the prior period financial
statements to conform to the current year's presentation.
1. CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2002, the Company adopted the new accounting
standard for stock-based compensation. The standard requires an
expense to be recognized for certain awards of stock-based
compensation. The standard, which requires retroactive
application for certain of the Company's awards as a charge to
opening retained earnings without restatement of prior periods,
resulted in a charge to opening retained earnings on adoption of
$5.4 million.
Effective January 1, 2002, the Company adopted the new accounting
standard for goodwill and other intangible assets. The standard
requires, among other things, that goodwill no longer be
amortized but will be tested for impairment at least annually.
The standard is being applied prospectively. Goodwill arising
from the acquisition of Midcoast Energy Resources, Inc. in May
2001, included in long-term assets held for sale, was amortized
over 30 years prior to the adoption of the new standard. Results
of operations for the three and nine months ended September 30,
2001 included goodwill amortization of $2.4 million and $3.8
million, respectively. This amortization reduced both basic and
diluted earnings per share by $0.01 and $0.02 for the three and
nine months ended September 30, 2001, respectively.
The Company has adopted the new accounting guideline for Hedging
Relationships. The new guideline addresses the identification,
designation, documentation and effectiveness of hedging
relationships, for the purpose of applying hedge accounting, and
establishes certain conditions for the application of hedge
accounting. Since the Company is in compliance with SFAS No.133,
the United States standard for derivative instruments and hedging
activities, in the areas addressed by the guideline, the new
guideline does not impact results.
2. SEGMENTED INFORMATION (millions of Canadian dollars)
Three months ended September 30, 2002---------------------------------------------------------------------- Energy Energy Transportation Distri- Inter- Consol- North South bution national Corporate idated----------------------------------------------------------------------Revenues 352.2 403.4 410.8 6.7 2.5 1,175.6Gas costs (169.8) (333.1) (180.9) - - (683.8)Operating and administrative (72.3) (40.8) (123.9) (4.3) (4.4) (245.7)Depreciation (35.4) (2.2) (58.5) (0.9) (1.0) (98.0)Writedown of assets held for sale - (117.4) - - - (117.4)----------------------------------------------------------------------Operating income/(loss) 74.7 (90.1) 47.5 1.5 (2.9) 30.7Investment and other income 18.0 8.5 2.4 16.8 23.9 69.6Interest and preferred equity charges (23.9) (8.4) (38.3) (0.9) (43.9) (115.4)Income taxes (12.5) 29.8 (8.5) (1.0) 3.4 11.2----------------------------------------------------------------------Earnings/(loss) from continuing operations 56.3 (60.2) 3.1 16.4 (19.5) (3.9)----------------------------------------------------------------------------------------------------------------------Earnings from discontinued operations - -----------Loss applicable to common shareholders (3.9)--------------------------------------------------------------------------------------------------------------------------------------------Three months ended September 30, 2001---------------------------------------------------------------------- Energy Energy Transportation Distri- Inter- Consol- North South bution national Corporate idated----------------------------------------------------------------------Revenues 179.0 239.6 542.3 7.3 1.3 969.5Gas costs - (192.9) (359.3) - - (552.2)Operating and administrative (71.1) (21.2) (89.0) (4.4) (4.4) (190.1)Depreciation (34.1) (9.8) (54.8) (0.5) (1.0) (100.2)----------------------------------------------------------------------Operating income/(loss) 73.8 15.7 39.2 2.4 (4.1) 127.0Investment and other income 14.3 7.0 7.8 4.3 19.8 53.2Interest and preferred equity charges (26.9) (13.2) (37.8) - (40.0) (117.9)Income taxes (15.1) (5.1) (7.1) 0.7 22.7 (3.9)----------------------------------------------------------------------Earnings/(loss) from continuing operations 46.1 4.4 2.1 7.4 (1.6) 58.4----------------------------------------------------------------------------------------------------------------------Earnings from discontinued operations 6.4 -----------Earnings applicable to common shareholders 64.8--------------------------------------------------------------------------------------------------------------------------------------------Nine months ended September 30, 2002---------------------------------------------------------------------- Energy Energy Transportation Distri- Inter- Consol- North South bution national Corporate idated----------------------------------------------------------------------Revenues 987.4 1,174.8 1,723.8 19.8 5.4 3,911.2Gas costs (440.0) (982.0) (863.9) - - (2,285.9)Operating and administrative (201.4) (113.7) (345.6) (11.4) (11.6) (683.7)Depreciation (104.3) (23.2) (172.0) (2.1) (6.3) (307.9)Writedown of assets held for sale - (117.4) - - - (117.4)----------------------------------------------------------------------Operating income/(loss) 241.7 (61.5) 342.3 6.3 (12.5) 516.3Investment and other income 49.8 31.5 29.9 46.0 62.4 219.6Interest and preferred equity charges (74.2) (26.0) (123.5) (0.9) (121.0) (345.6)Income taxes (48.1) 17.4 (99.0) (1.0) 40.6 (90.1)----------------------------------------------------------------------Earnings/(loss) from continuing operations 169.2 (38.6) 149.7 50.4 (30.5) 300.2----------------------------------------------------------------------------------------------------------------------Earnings from discontinued operations 242.3 -----------Earnings applicable to common shareholders 542.5--------------------------------------------------------------------------------------------------------------------------------------------Nine months ended September 30, 2001---------------------------------------------------------------------- Energy Energy Transportation Distri- Inter- Consol- North South bution national Corporate idated----------------------------------------------------------------------Revenues 528.2 457.5 2,337.5 20.8 3.5 3,347.5Gas costs - (362.8)(1,534.0) - - (1,896.8)Operating and administrative (199.4) (44.4) (253.0) (14.0) (15.1) (525.9)Depreciation (101.0) (19.7) (164.9) (1.1) (3.0) (289.7)----------------------------------------------------------------------Operating income/(loss) 227.8 30.6 385.6 5.7 (14.6) 635.1Investment and other income 37.0 33.3 36.9 19.3 42.6 169.1Interest and preferred equity charges (79.1) (18.4) (120.1) (0.1) (115.2) (332.9)Income taxes (49.8) (17.7) (75.0) 0.2 54.5 (87.8)----------------------------------------------------------------------Earnings/(loss) from continuing operations 135.9 27.8 227.4 25.1 (32.7) 383.5--------------------------------------------------------------------------------------------------------------------Earnings from discontinued operations 35.2 ------------Earnings applicable to common shareholders 418.7--------------------------------------------------------------------------------------------------------------------------------------------
3. ASSETS HELD FOR SALE
In October 2002, the Company closed the sale of the United States
assets of Enbridge Midcoast Energy to Enbridge Energy Partners,
L.P. (the Partnership), including the assets described in Note 4.
In conjunction with the sale and the Partnership's financing
arrangements, which included the formation of Enbridge Energy
Management, L.L.C. (EEM), the Company increased its ownership in
the Partnership to 14.1% from 12.9%.
EEM is controlled by Enbridge and has been assigned the role as
operator of the Partnership by the general partner, a
wholly-owned subsidiary of the Company. The Company continues to
exercise significant influence over the assets sold and,
therefore, results of operations have not been segregated from
continuing operations.
The book value of the assets was written down by $76.3 million
(after tax) in the third quarter of 2002 to reflect fair value
based on the proceeds of US $820 million. The purchase price is
subject to adjustment for working capital, capital expenditures
and other items. For the nine months ended September 30, 2002,
excluding the asset writedown, the assets generated earnings of
$10.5 million.
4. ACQUISITION
In March 2002, the Company acquired natural gas gathering and
processing facilities in Northeast Texas for cash consideration
of $289.3 million. The facilities and the goodwill are included
in the sale described in Note 3. All of the goodwill is expected
to be deductible for tax purposes. The results of operations
have been included in the consolidated statement of earnings from
the date of acquisition.
(millions of Canadian dollars)---------------------------------------------------------------------Fair Value of Assets Acquired Property, plant and equipment 242.3 Goodwill 56.2 Working capital deficiency (9.2)--------------------------------------------------------------------- 289.3------------------------------------------------------------------------------------------------------------------------------------------Purchase Price Cash 288.2 Transaction costs 1.1--------------------------------------------------------------------- 289.3------------------------------------------------------------------------------------------------------------------------------------------
5. DISCONTINUED OPERATIONS
The sale of the Company's business operations that provide energy
products and services to retail and commercial customers,
including the water heater rental program, closed in May 2002.
Selected financial information related to discontinued operations
is as follows.
Financial Position September 30, December 31,(millions of Canadian dollars) 2002 2001---------------------------------------------------------------------Assets Current assets - 123.0 Property, plant and equipment - 584.2 Other assets - 165.8--------------------------------------------------------------------- - 873.0---------------------------------------------------------------------Liabilities Current liabilities - 73.8 Future income taxes - 118.6---------------------------------------------------------------------Net Assets of Discontinued Operations - 680.6------------------------------------------------------------------------------------------------------------------------------------------Earnings Three months ended Nine months ended September 30, September 30,(millions of Canadian dollars) 2002 2001 2002 2001---------------------------------------------------------------------Net gain on disposition - - 240.0 -Earnings for the period - 6.4 2.3 35.2---------------------------------------------------------------------Net earnings from discontinued operations - 6.4 242.3 35.2------------------------------------------------------------------------------------------------------------------------------------------Revenues - 114.5 181.9 330.2Income tax expense/(recovery) - 4.2 32.3 (7.2)Allocated interest expense - 10.4 12.1 27.6
6. PREFERRED SECURITIES
In February 2002, the Company completed a public offering of $200
million, 7.8% Preferred Securities, for net proceeds of $193.5
million. The Preferred Securities may be redeemed at the
Company's option in whole or in part after the fifth anniversary
of issue. The Company has the right to defer, subject to certain
conditions, payments of distributions on the securities for a
period of up to 20 consecutive quarterly periods. Deferred and
regular distribution amounts are payable in cash or, at the
option of the Company, in common shares of the Company. Since
the distributions may be settled through the issuance of common
shares at the Company's option, the Preferred Securities are
classified into their respective debt and equity components. The
equity component of the Preferred Securities was $194.9 million
at September 30, 2002.
7. COMMON SHARES
On September 4, 2002, the Company completed a public offering of
5.0 million common shares at $46.30 per common share. In
connection with the offering, the Company completed a private
placement of 500,000 common shares to Noverco Inc., also at
$46.30 per common share. Net proceeds from the public offering
and the private placement totalled $245.2 million.
8. STOCK-BASED COMPENSATION
The Company accounts for the issue of options under its stock
option plans as capital transactions when the options are
exercised. During the nine months ended September 30, 2002, 1.8
million stock options were issued at an average exercise price of
$44.90 under the Company's Incentive Stock Option Plan. Of these
options, 1.0 million were fixed stock options and 800,000 were
performance-based stock options. The performance-based options
vest in equal annual instalments over a five-year period and
become exercisable, as to 50% of the grant, if the market price
of a common share exceeds $61.00 per share for 20 consecutive
trading days during the five-year period ended September 16, 2007
and, as to 100%, if the market price of a common share exceeds
$71.00 for 20 consecutive trading days during the same period.
The performance-based options expire on September 16, 2007 but
will extend to September 16, 2010 for any that become exercisable
before September 16, 2007. If the Company had used the
fair-value based method to account for stock-based compensation,
earnings and earnings per share would have been as follows.
Three months ended Nine months ended(millions of Canadian dollars) September 30, 2002 September 30, 2002---------------------------------------------------------------------Earnings/(loss) from continuing operations As reported (3.9) 300.2Stock-based compensation expense 0.8 1.9---------------------------------------------------------------------Pro forma (4.7) 298.3 Earnings/(loss) applicable to common shareholdersAs reported (3.9) 542.5Stock-based compensation expense 0.8 1.9---------------------------------------------------------------------Pro forma (4.7) 540.6 Earnings/(loss) per share from continuing operations As reported (0.03) 1.89Pro forma (0.03) 1.88 Earnings/(loss) per share As reported (0.03) 3.42Pro forma (0.03) 3.41
1. Pro forma earnings and earnings per share do not reflect
options granted prior to January 1, 2002, the date of adoption of
the new standard.
2. The Black-Scholes model was used to calculate the fair value
of the fixed stock options. Significant assumptions include a
risk-free interest rate of 5.33%, expected volatility of 25%, an
expected life of 10 years and an expected dividend yield of
3.51%. The weighted average grant-date fair value of the fixed
stock options granted during the nine months ended September 30,
2002 was $11.42.
3. A barrier valuation model was used to calculate the fair value
of the performance-based options. Significant assumptions include
a risk-free interest rate of 4.20%, expected volatility of 24%,
an expected life of 8 years and an expected dividend yield of
3.46%. The weighted average grant-date fair value of
performance-based options granted during the nine months ended
September 30, 2002 was $7.65.
9. CONTINGENCIES
Late Payment Penalties
In October 2002, the Supreme Court of Canada granted an
Application for Leave to Appeal to a customer who commenced an
action against Enbridge Gas Distribution (formerly Enbridge
Consumers Gas) claiming that the OEB-approved late payment
penalties charged to customers were contrary to Canadian federal
law. The Court will hear the plaintiff's appeal of the Ontario
Court of Appeal's decision, released in December 2001, to dismiss
a Notice of Appeal filed by the plaintiff in April 2000. The
Company believes it has sound defences to the plaintiff's claim
and it intends to vigorously defend the action.
CAPLA Claim
The Canadian Alliance of Pipeline Landowners' Associations and
two individual landowners have commenced an action, which they
will be applying to certify as a class action, against the
Company and TransCanada PipeLines Limited. The claim relates to
restrictions in the National Energy Board Act on the landowners'
use of land within a 30-metre control zone on either side of the
pipeline easements. The Company believes it has a sound defence
and intends to vigorously defend the claim. Since the outcome is
indeterminable, the Company has made no provision for any
potential liability.
-----------------------------------------------------------Supplementary Financial Information Number of SharesCommon Shares - issued and outstanding 169,784,071(voting equity shares)Preference Shares, Series A 5,000,000(non-voting equity shares)Total issued and outstanding stock options 7,111,005(3,944,908 vested)-----------------------------------------------------------
The Company has a Shareholder Rights plan designed to encourage
the fair treatment of shareholders in connection with any
takeover offer for the Company. Rights issued under the plan
become exercisable when a person, and any related parties,
acquires or announces its intention to acquire 20% or more of the
Company's outstanding common shares without complying with
certain provisions set out in the plan or without approval of the
Board of Directors of the Company. Should such an acquisition or
announcement occur, each rights holder, other than the acquiring
person and related parties, will have the right to purchase
common shares of the Company at a 50% discount to the market
price at that time.
Supplementary information as at October 25, 2002.
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